Fed Drifting into Obama's Territory

by Gerri Willis

I spoke at the top of today's show about the need for leaders to stop using the terms "fixing" problems and "spending" money on them as interchangeable. But it happens all the time. As a matter of fact, the Wall Street Journal reports today that Federal Reserve officials are beginning to think about a new program to help the struggling housing market by cutting mortgage rates.

Now, the Fed doesn't directly control mortgage rates but it does influence them. In fact, Federal Reserve Chairman Ben Bernanke has been holding rates close to zero for three years - and mortgage rates have moved to 50-year lows - rising slightly only recently. None of that effort has paid off with a rising housing market yet - but the Fed may well double down on that policy.

To do that, the Fed would buy mortgage-backed securities -- the assets that nearly cratered the financial industry during the financial crisis. And that means it would print money or use its own reserves to buy them - both of which could cost us in the long run by raising inflation.

Look, I think there is widespread agreement that the factors standing in the way of a housing recovery aren't mortgage rates - after all, 30-year fixed rates stand at 4.18 percent - while a 15-year mortgage rate is just 3.47 - according to Bankrate.com. The real problem for a housing recovery is 9.1 percent unemployment.

Without jobs, consumers can't buy homes. No income, no loan.

And that's the other problem - qualifying for a loan these days is difficult - lenders want sparkling credit scores and solid employment histories. In other words, just as bank loan officers were loosey goosey during the housing boom they are incredibly strict in their terms now.

The Fed seems to be drifting into territory that the Obama Administration itself has failed at time and again. Whether you talk about HAMP or HARP or any one of a number of other programs - none of them have worked.

The main reason? Banks just haven't wanted to lend - regardless of the benefits or perks or muscle applied by the White House.

Ultimately, our housing market will have to shake off these doldrums on its own - work through the downdraft. More government spending and more federal promises aren't going to do it.